The Bears Are Back At It In Energy Markets, With Heavy Selling To Start The Week

The bears are back at it in energy markets, with heavy selling to start the week. Refined products are down a nickel in early trading, while crude oil futures are off 2% despite US stock markets trading at record highs. A new Chinese stimulus plan over the weekend is being met with something less than enthusiasm in the energy arena, and the US is making new efforts to try and head off an Israeli attack on Iran’s oil facilities.

The US Treasury announced new sanctions against Iran’s petroleum industry and the “shadow fleet” of ships that have helped the country elude the loosely-enforced restrictions for years. That announcement appears to be a clear signal that the US is trying to encourage Israel to avoid attacking Iranian oil infrastructure and perhaps igniting a wider war that could push up fuel prices just before the election.

Money managers didn’t waste anytime reversing course on Brent crude positions, with more than 123,000 contracts of net length added by the large speculative category of trader in last week’s report, which was split roughly 60/40 on new length added vs short covering purchases. Refined products also saw healthy buying , with most of the net-short positions in the diesel contracts bailing out in just one week. WTI has the exception to the war-buying rule, with a decline in long positions offsetting short covering for a small net decline in net length on the week. It’s also worth noting that the producer/merchant category of trader sold heavily into the Brent price rally this week, suggesting the big physical players see the recent rally as a good opportunity to lock in prices for the near future.

The NHC is tracking another potential tropical storm system, this one is given 40% odds of developing as it heads towards the Caribbean this week. As is often the case with a potential storm that may not form for the better part of the week, forecast models have widely varying paths with some pointing towards Central America, while others have it hooking north and threatening the Carolinas. See model maps below.

Marathon reported multiple unplanned upsets at the Wilmington section of its LA-area refining complex overnight. The company has been dealing with intermittent flaring as it makes repairs to units at both sections of that facility over the past couple of weeks, but so far basis markets in LA have not had a major reaction. Last Friday the California senate passed a new measure that would require refiners in the state hold a minimum inventory level and report both planned and unplanned maintenance to try and prevent the price spikes that we saw as RVP season wound down the past 2 years. Many in the industry think the measures are typically Californian, and will simply raise prices year round to try and avoid the occasional short term spike.

Baker Hughes reported US oil rigs increased by 2 last week, while the natural gas rig count dropped by 1.